Chancellor George Osborne announced a Budget for Makers, Doers and Savers. I believe that this Budget will be the most impactful on client-centric retail financial services propositions for many years.
The impact on Makers will be significant with the doubling of the annual investment allowance from £250,000 to £500,000 from the end of 2015, the previously announced reduction in corporation tax ultimately to 20 per cent, and other supportive measures.
The impacts of most interest to providers and advisers will probably be the announcements relating to Doers and Savers.
It is hoped the changes to income tax thresholds will begin to reverse the creeping trend of increasing numbers of higher rate income tax payers. The personal allowance, which is given to most taxpayers whose income does not exceed £100,000, will rise to £10,000 in 2014/15 and to £10,500 in 2015/16. In addition, the threshold above which higher rate tax is payable will rise to £41,865 in 2014/15 and £42,285 in 2015/16.
Disappointingly for those with higher incomes, there are no changes to either the £100,000 or £150,000 thresholds, relating respectively to the loss of personal allowances and the application of the 45 per cent rate.
The impact on savers is probably the area of most significance. The changes relating to DC pensions (and also to DB arrangements in due course) are dealt with elsewhere on the website. Suffice to say here that for many clients these changes give them the ability to access their pension fund in whole or in part and at any time, subject only to income tax at their marginal rate. This is a very sensible development in my view, which will encourage the wider use of pensions in retirement planning, as pensions will simply become “big Isas”.
Talking of which, equally of significance for many savers are the changes to Isas themselves. The annual limit will increase to £15,000 from 1 July 2014. The formerly separate structures of stocks & shares and also cash Isas will be merged in to the so-called New Isa, enabling greater use of asset allocation risk profiling using cash as an asset class.
The changes in this Budget will redefine financial planning and the propositions required to meet future client needs. I have no doubt that providers and advisers will make significant changes in the light of these developments.
Colin Jelley is propositions expert, formerly of St. James’s Place and Old Mutual